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CEO Balsillie shrugs off 'BlackBerry killer'

If Jim Balsillie is concerned about the arrival of Apple Inc.'s much-hyped iPhone, he's doing a good job of keeping it to himself.

Jim Balsillie, the co-CEO of Research in Motion, shown in this 2007 file photo. (DAVE CHIDLEY / CP FILE PHOTO)

By Chris SorensenBusiness Reporter

Sat., July 7, 2007

WATERLOO–If Jim Balsillie is concerned about the arrival of Apple Inc.'s much-hyped iPhone, he's doing a good job of keeping it to himself.

The co-CEO of Research In Motion Ltd., which makes the popular line of BlackBerry email devices, said in an interview at RIM's Waterloo headquarters that he's not losing sleep over Apple's efforts to upend the wireless market in much the same way as its wildly popular iPod music devices changed the way people acquire and listen to music.

In fact, Balsillie said he couldn't even confirm whether anyone at RIM's sprawling campus has managed to get their hands on an iPhone, which went on sale in the United States a week ago amid a torrent of media coverage.

"I haven't seen one," he volunteered with a shrug of his shoulders and a bored expression.

"It's possible, I guess. I mean, you watch these things, but you really have to just focus and do your job."

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While such an indifferent attitude may seem foolhardy given estimates that Apple may have sold as many as half a million iPhones in its first weekend, Balsillie nevertheless has good reason to project confidence about RIM's ability to survive the latest so-called "BlackBerry killer."

RIM, with a global subscriber base of over 9 million, is adding new customers at rate of about 1 million every three months and is showing no signs of slowing.

Still, Apple's foray into the wireless market suggests more than just the arrival of another trendy, eye-catching device. The Cupertino, Calif.-based computer maker is clearly on a roll after the success of the iPod and early reviews suggest that the iPhone, while perhaps not a huge leap forward in terms of functionality, has set the bar significantly higher when it comes to the look and feel of wireless devices.

Perhaps more important, Apple is also eager to change the way smart phones are sold and marketed by wresting control of consumer experience from wireless carriers – a strategy that could either force RIM to revise its approach or reinforce a key competitive advantage.

IT'S 10:30 A.M. and Balsillie is sitting in a RIM boardroom drinking coffee from a stainless steel mug. He is wearing a sky-blue T-shirt tucked into grey dress pants. Black socks and loafers complete the decidedly casual office-casual look. An autographed Aerosmith poster hangs on the wall, a memento from a 2004 staff party that featured a performance from the boisterous rock band. It also serves as a reminder that RIM is still a hip tech company despite a $42 billion market valuation, putting the firm on par with some major banks.

Along with co-founder and co-CEO Mike Lazaridis, Balsillie has helped build RIM into one of the country's true growth stories as the BlackBerry continues to cement its position as a must-have gadget.

Just last week, on the eve of Apple's iPhone debut, RIM blew past analysts' expectations with quarterly results that included a 76 per cent increase in sales to over $1 billion in what was supposed to be a slower time of the year for the company. Investors reacted by piling into the stock, pushing it up more than 20 per cent overnight. The following day several analysts jacked up their 12-month targets and may be forced to do so once again amid reports this week that RIM has received approval to sell the BlackBerry in China.

While Balsillie projects an all-in-a-day's-work attitude, it's clear that even he is sometimes surprised by RIM's recent feats.

"We're definitely in a leading spot in a hot sector," he says. "I think we accepted the fact a little while ago that we're no longer steering the ship, but aiming it."

Developed to "push" corporate email from a company's server to employees' hips without violating corporate firewalls, the BlackBerry is now spilling over into mainstream markets.

"Awareness of the BlackBerry is developing on a new level globally, gaining mindshare more than ever before," wrote Mike Abramsky, an analyst at RBC Capital Markets, following last week's earnings. Abramsky now has a $250 target on RIM's stock, up from $180 prior to the earnings release.

But the threat from Apple and others is far from vanquished. Apple has said it expects to sell 10 million of the devices by the end of next year and some analysts are already predicting that number could be closer to 17 million.

RIM, a 20-year-old company with 6,000 employees, says it will ship its 20 millionth BlackBerry device sometime this summer.

As well, some are arguing that Apple has single-handedly redefined the concept of a cellphone with the iPhone's giant touch-screen interface, making devices such as the BlackBerry Pearl, launched just last September, appear relatively clunky and outdated."Nobody does industrial design as well as Apple does it today," says Carmi Levy, senior vice-president of strategic consulting for AR Communications Inc. "But you can bet your next mortgage payment that RIM's engineers are already working on the next design that mimics and probably leapfrogs the iPhone. That's the name of the game."

BALSILLIE IS the first to admit some will find the iPhone's look appealing, but he says he's doubtful the device will have much of an impact on RIM's overall sales. For one thing, he says, the iPhone will hold little appeal for RIM's core business market and its need for secure information technology systems, which RIM has been providing for years with its corporate BlackBerry email servers.

He is also intensely critical of what appears to be an effort by Apple to wrest control of the customer experience in the consumer market. For example, the iPhone is being sold through Apple's own stores, instead of strictly through AT&T Inc., which signed an exclusive U.S. deal with the computer maker. The phone is free of AT&T's logo and software and is tied closely to Apple's iTunes music store, which is where subscribers will need to go to activate their phones and browse rate plans.

"It's a dangerous strategy," says Balsillie. "It's a tremendous amount of control. And the more control of the platform that goes out of the carrier, the more they shift into a commodity pipe."

The risk, of course, is that carriers could decide to push back by promoting smartphones made by well-established competitors such as RIM, Nokia Oyj and Motorola Inc.

Some have compared Apple's strategy to one that seeks to emulate what Starbucks Corp. did to coffee, which is basically to take a commoditized, or nearly commoditized product – in this case cellphones – and transform it into something that can be sold at a premium. Apple is charging its U.S. customers as much as $599 (U.S.) for an iPhone, whereas the BlackBerry Curve is priced by AT&T at $199 (U.S.) with a two-year data plan.

By contrast, RIM has elected to partner with carriers in the belief that both sides would benefit. Under the agreements, the wireless carrier markets and sells the devices along with rate plans to its customers, leaving RIM free to focus on hardware and software production and development. RIM currently has agreements with some 300 carriers in 120 countries.

In addition to being paid for the devices themselves, RIM also receives a significant cut – estimated by analysts to be between 10 per cent and 40 per cent – of the carrier's monthly subscriptions in exchange for handling the email traffic and providing customer support.

Wireless carriers benefit from the opportunity to sell a service – secure wireless email – that brings in more average revenue per subscriber than a standard cellphone contract without having to invest in any new technology. For RIM, the only downside is that it must relinquish some control of the way its products are marketed and distributed.

AR Communications' Levy argues that the biggest weakness of the iPhone will likely have nothing to with the device itself, but with the services that are offered to accompany it. For example, early reviews have praised the iPhone's Web browser for allowing users to see entire Web pages just as they would on a desktop computer, but noted the feature is seriously hampered by AT&T's slower Edge network, with some reports suggesting that Web pages can take several minutes to load.

RIM, on the other hand, has literally years of experience when it comes to working with carriers to deliver wireless data services.

Some analysts are predicting that RIM will soon unveil devices with significantly better Internet surfing capabilities.

"In many respects RIM is now enjoying the payoff after years of being considered an outcast in the wireless world," Levy says. "And the reason they have managed to survive the continuous onslaughts by their competitors is because they focused on just one thing and did it really, really well."

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